(Originally published on Finance & Commerce), Written by Leah M. Berend, CPA;
Private equity-owned companies are experiencing remarkable growth and expansion both in the United States and internationally. Well performing companies are targeted by private equity firms seeking to enhance performance and maximize their value. However, the key to their success lies in the leadership of their management teams. In this article, we will delve into the valuable lessons and best practices that define leadership in private equity-owned companies.
Distinguishing elite private equity-backed executives from their counterparts are five behavioral traits that drive exceptional outcomes. While most leaders believe they possess these traits, the elite few have carefully analyzed their circumstances, trusting their instincts to make swift decisions. In contrast, less effective leaders often struggle with decision-making, wasting precious time pondering their choices only to ultimately reach the same conclusion they could have arrived at instantly. Remarkably, top-tier private equity executives embrace the notion of making mistakes. However, what sets them apart is their ability to rectify those mistakes promptly and avoid repeating them in the future.
In summary, private equity may not be flawless, but it offers invaluable leadership lessons for those aiming to excel at the highest level. The benefits are significant, including substantial revenue growth. Let’s explore some of the best practices for leadership in private equity-owned companies:
- Develop a clear strategy: The foundation of success for a private equity-owned company lies in the development of a well-defined strategy. The management team should create a strategy that aligns with the goals of the private equity firm, ensuring that every employee is working harmoniously toward the same objective.
- Build a strong executive team: The executive team bears the responsibility of executing the strategy and driving the company’s growth. Private equity firms expect the management team to possess a proven track record of success and the ability to implement the strategy effectively. It is crucial for the management team to be aligned and fully committed to the agreed-upon strategy.
- Focus on value creation: Private equity firms invest in companies with the intention of enhancing their performance and increasing their value. To achieve this, the management team must concentrate on value creation by identifying areas that can be improved and implementing changes that will elevate the company’s overall value.
- Embrace change: Change is an inevitable aspect of operating a private equity-owned company. The management team should embrace change and demonstrate a willingness to adapt to new circumstances. Proactively identifying areas for improvement and promptly implementing necessary changes are expectations from private equity firms.
- Cultivate a culture of accountability: A culture of accountability is fundamental to the success of a private equity-owned company. The management team should foster an environment where both they and their employees take responsibility for their actions and results. Private equity firms anticipate a management team with a proven track record of success, capable of executing strategies effectively.
- Communicate effectively: Effective communication is paramount within a private equity-owned company. The management team should ensure that the strategy, goals, and expectations are clearly communicated to all employees. Regular and transparent updates on the company’s performance should be provided to satisfy the private equity firm’s expectations.
- Develop a strong relationship with the private equity firm: The private equity firm serves as a crucial partner in the success of a private equity-owned company. Therefore, it is essential for the management team to establish a strong and open relationship with the private equity firm. Keeping them informed of the company’s progress and involving them in key decisions will strengthen this partnership.
In conclusion, effective leadership is of paramount importance in the success of a private equity-owned company. By developing a clear strategy, building a strong executive team, focusing on value creation, embracing change, cultivating a culture of accountability, communicating effectively, and nurturing a robust relationship with the private equity firm, these companies can achieve their goals and significantly increase their value.
Leah Berend is the Chief Financial and Chief Administrative officer of Oxbow Industries.
With over $2.5 billion corporate financial transactions completed, Oxbow Industries is dedicated to building businesses in partnership with their management teams. Oxbow seeks to invest in leading middle-market companies with outstanding leadership teams and a significant opportunity for equity appreciation. Learn More at www.OxbowIndustries.com